May 23, 2000
Over the years, few companies have invested in Africa's consumer markets. However, Coca-Cola has proved itself the exception. The U.S.-based soft drink manufacturer announced plans on May 16 to invest $1 billion in Africa, reported the Johannesburg daily, Business Day.
This expansion is a significant shift in foreign investment in Africa. The majority of multinationals in Africa concentrate on mineral extraction, seldom contributing to the development of other sectors of host countries' economies. Coca-Cola is attempting to create a consumer market in Africa – a move that may encourage other investors and pave the way for further development of Africa's economies.
Spread out over the next three years, the planned investment will be approximately one tenth of total foreign direct investment for the entire sub-Saharan region. The region receives approximately $4.4 billion annually in foreign direct investment, according to the World Bank. Coca-Cola's decision indicates its confidence in a growing sub-Saharan economy.
Coca-Cola plans to build new canning and bottling plants, purchase or build new marketplace infrastructure and parallel businesses, such as food outlets, in the region. Since 1995, Coca-Cola has gained the lion's share of the soft drink market in Africa, with South Africa rating as its eighth largest market worldwide. The company saw sales rise 30 percent throughout the continent in 1999.
Coca-Cola has invested approximately $600 million in Africa since 1995. Even that minor investment has had significant results. According to a March 2000 study conducted jointly by the University of South Africa's and the University of South Carolina's business schools, Coca-Cola currently employs approximately 3 percent of South Africa's population. Approximately 700,000 people rely directly or indirectly on the distribution of Coca-Cola products, according to AFX European Focus.
The industry contributed more than $1.4 billion, approximately 1 percent of South Africa's GDP in 1998. In addition, through formal and informal distribution networks, Coca-Cola boosted several industries including transport and communications, glass, plastics, fabricated materials, sugar, construction, electricity, water, gas and financial services. Averaged economic activity from these industries reached almost $700 million each year for the last three years, according to reports.
The infusion of capital and the development of infrastructure could shift Africa's economies from their dependence upon natural resources. Coca-Cola already operates in 50 sub-Saharan countries and is Africa's leading soft drink producer. The company has 75 bottling partners continent-wide with a total of 140 canning and bottling plants. Transposing Coca-Cola's success in South Africa throughout the continent, however, won't be easy, even with $800 million.
Through its base in South Africa, though, Coca-Cola can tap existing relationships to aid in its expansion. Most of Pretoria's neighbors are tied to the South African economy. As the leading member of the South African Customs Union (SACU), South Africa dominates trade in the region, contributing more than 50 percent of all imports. One of Coca-Cola's local South African bottlers, Sabco, also operates plants in Kenya, Namibia, Tanzania and Uganda.
Coca-Cola will likely expand its operations in these countries. In a continent rife with both wars and political upheavals, Kenya, Namibia and Uganda enjoy relative political stability. As Coca-Cola expands, establishing trade routes and distribution networks in sub-Saharan Africa, other foreign investors may gain interest in investing in Africa's non-mineral sectors as well. Growth in the food and beverage markets will also create opportunities for other industries such as automotive parts, construction, energy, food packaging, marketing, plastics and printing.
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